September 7, 2017
In late August, Dr. George Ford from the Phoenix Center for Advanced Legal and Economic Public Policy Studies released a report on Opelika, Ala.’s government-owned broadband network. Ford also published a column at AL.com discussing Opelika and government-owned networks more generally. His findings confirm government networks harm electricity ratepayers and city taxpayers.
Opelika spent $43 million on its city-owned system, which came online in 2013. Opelika’s mayor has claimed the network is on track to break even this year, but Ford disagrees. He says those claims are “entirely at odds with the city’s own books.” As Ford explains, the city ISP has experienced persistent “large” annual losses, which totaled $14 million through 2016, and still owes $42 million in debt.
Ford reports the city also has “raised electric rates by $5.39 per customer to subsidize” the city broadband network. These subsidies are significant. Ford reports that, “by the end of 2016, the average electric customer had funded a subsidy of $1,125 from the electric to the telecommunications division.”
The future does not look any more profitable. In his report, Ford explains the city is expected to continue losing money on its broadband project through at least 2020, at which point its losses will total “nearly $19 million.” Ford even says, “By any meaningful financial metric, OPS’s broadband network is unlikely ever to be ‘profitable.’”
Without broadband, the city utility would run a profit. That means it’s unlikely that the city would need to raise electricity rates. The ISP’s deficit affects taxpayers more generally as well since the city no longer benefits the utility’s surplus. Ford explains, “Prior to the broadband network, the city benefitted from the internal transfer of millions in profits from the electric division, and now those profits are substantially lower, impacting all taxpayers.” The loss of those profits means fewer dollars to spend on parks, or public safety.
In his AL.com column, Ford concludes, “Playing with other people’s money might be fun for some, and can help vanity temples for public servants looking to claim they are leading a local tech revival. But municipal broadband has often broken the finances of many communities fooled by shiny objects without honest leadership and open books and that would expose the mirage.”
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